Marc MacSharry (Sligo-Leitrim, Fianna Fail) | Oireachtas source

I thank the Chairman and members for the opportunity to discuss this matter. The introduction and implementation of a child tax credit or allowance of up to €1,654 per annum for each child up to a maximum of four, even where a worker does not have any tax liability, as is the case for many low-income workers, would be very progressive. A minimum wage worker with three children earning €18,958 from working 39 hours per week would receive a tax credit or allowance of €4,962 which would in turn increase his or her net income by 26% to €23,920. An identical family with a gross income of €70,000 would gain only 10%.

I set about compiling this analysis based on the experience of dealing with many families depending on social welfare and many more who are depending on low-income employment. Many here will have had similar a experience to me through their own constituency work. Through the years it has become clear that many issues exist which must be addressed to eliminate discriminatory quirks in both our welfare and taxation systems while incentivising work and also providing the necessary supports to families, whether working or not.

As the committee will be aware, in Ireland wages and our taxation system do not differentiate between workers with or without children. This is in contrast to the welfare system where there is an increase paid for every qualified child in addition to a personal payment and an increase for a qualified adult dependant if applicable.

The costs associated with raising a child as having a significant impact on the ability of a worker to bear the burden of taxation were acknowledged as far back as 1799 when a tax on income was first introduced. Any working parent of a child was consequently entitled to relief. The method varied through the years but working families with children continued to pay less than those without until 1986 when the then child allowance was abolished. As things stand our taxation system provides a tax credit for an adult dependant but gives no recognition to children or the associated costs of raising a family. Our welfare system, on the other hand, provides €1,654 in additional support per year per child for no fewer than 27 different welfare schemes together with likely qualification for a number of other benefits such as medical card and housing support among others.

This paper outlines some of the many anomalies that exist in both our tax and welfare systems. The analysis shows clearly, for example, that a low-income worker, such as a worker on the minimum wage, is better off choosing not to work and claiming jobseeker's benefit or allowance if he or she has a number of children. Clearly, such a situation is unsustainable. One such example is a married couple with three children. If they are on jobseeker's allowance of €17,129, it is further supplemented by €1,654 for each child, a total of €4,962, giving an overall total income of €22,091.

They would also qualify for secondary benefits in terms of the medical card, housing support, etc. If we looked at the equivalent family working on the minimum wage for 39 hours per week, its income would be €18,958. The family gets no allowances of any description for their children, as with the welfare system, and so €18,958 is the family's total income. This indicates to me - I am sure many of us have come across it - that it incentivises people in those circumstances not to work as opposed to seeking out gainful employment. The research outlines much of the detail regarding existing welfare supports, anomalies therein relative to working families and the clear need for tangible action to address the problem in a way which is fair and supportive to those often referred to as the working poor - in other words, low and middle-income workers.

On foot of the research reflected in this paper, my conclusion is to propose the introduction of a child tax credit or allowance thus ensuring that our taxation system treats children in the same way as our welfare system. For the purposes of preparing a paper only, I pitched the child tax allowance or credit at the same level as the child social welfare qualifying payment of €1,654 per child. However, to seek to do so at that level in one year or in a short period of years would, in light of the enormous cost of more than €1 billion per annum, be reckless. It is worth considering that if we accept the principle, which is what I am seeking to promote, of the need to introduce such a child tax credit or allowance, we could build towards it over time. The research carried out by my team and me included a detailed analysis of the cost of such a child tax credit or allowance with the use of excellent support by way of data provision from the Department of Employment Affairs and Social Protection, which I would like to acknowledge. Our estimate is that 638,000 children under 18 will benefit at a total cost at just over €1 billion per annum with the credit set at €1,654 per child. A start might be a Government committing to €100 million to €150 million per annum to such a measure, which, subject to sustainable resources, could be built to mirror the child qualifying social welfare allowance over the lifetimes of two to four Administrations, namely, ten to 20 years.

Working families are the bedrock of our nation. The removal of existing anomalies and the provision of adequate support through the reform and reorganisation of parts of our taxation and welfare systems are essential. The status quoshould not and cannot be allowed to continue. Following research, it is my considered opinion that this group should be given a level of priority and should benefit from changes to tax bands and tax rates over the coming period via the introduction of the proposed child tax credit or allowance. As the language of surplus slowly begins to replace that of deficit and given the emergence of growing fiscal space, the time is right to consider the implementation of such measures. I very much hope that this paper can act as a catalyst to commence a meaningful discussion and can lead to the necessary and overdue acknowledgement of working families with children in our society.

I again thank the committee for its invitation. I hope it can concur with the merit of this proposal and advise the Departments of Finance, Public Expenditure and Employment Affairs and Social Protection of its support for the adoption, in principle, of the need to incentivise work while supporting those who cannot work with an appropriate child tax credit or allowance.